Investigating the Policy of International Trading Companies of Iran in Using Letters of Credit

Abstract

Letters of credit play a crucial role in international trade. In this study, we investigate the most preferable characteristics of letters of credit for the international trading companies in Iran. We seek to investigate which kind of guarantee (commercial L/C or standby L/C) they prefer to secure the performance of their client's obligations. Studied companies were 20 international trading companies in Tehran, from which 50 experts were participated in our survey study. For measuring the participants and their policy in using letters of credit, a questionnaire in Persian was designed. For analyzing data we used statistical tests (One-sample t-test). Data showed that being a guarantee, integration, documentary conditions, and secondary payment mechanism are four important reasons for international trading companies in Iran to use letters of credit in their contracts. Statistical results showed that "being a guaranteed credit" is the most important factor with a mean of 3.660 ± 1.135.Also, we found significant relationship between these four factors and the L/C usage policy (p 0.01, and p< 0.05). We concluded that they mostly prefer standby letters of credit for securing their transactions.